The document discusses various types of elasticity including: 1. Price elasticity of demand which measures the responsiveness of quantity demanded to a change in price. It discusses factors that affect price elasticity and types including elastic, inelastic, unitary, perfectly inelastic, and perfectly elastic demand. 2. Income elasticity of demand which measures responsiveness of demand to a change in income. It can be positive, negative, or zero. 3. Cross price elasticity of demand which measures responsiveness of the demand for one good to a price change in another good. 4. Price elasticity of supply which measures responsiveness of quantity supplied to a change in price. It provides examples of

1. Demand and Supply
Analysis

2. Session Outline
 To understand the meaning of responsiveness to change in
price and Income
 To discuss various types of Elasticity of Demand and Why
are they Important indicators of Consumer purchase
behavior.
 To learn the methods to calculate elasticity

3. Elasticity
 elasticity can be defined as the responsiveness of a variable (demand
or supply) with respect to its various determinants.
 The concept of elasticity was first introduced by Dr. Alfred Marshall.
 Types of Elasticity
- Elasticity of Demand
- Elasticity of Supply

4. Demand Elasticity

5. Price Elasticity of Demand

6. Contd……
Price elasticity of demand is a measure of a change in the quantity
demanded of a product due to change in the price of the product in the
market.

7. Calculating elasticity
Ex: The Price of X rises from Rs. 25 to Rs. 30.As a result the
demand for X falls from 80 pieces to 40 a day. F ind the Price
elasticity of demand.
This means that for a 10% increase in price the demand will fall
by 25%.

8. Types of Price Elasticity of Demand
 Elastic, inelastic and unitary demand
 for a 10% increase in price the demand will fall by 25% - Elastic
 for a 10% increase in price the demand will fall by 6% - Inelastic
 for a 10% increase in price the demand will fall by 10% - Unitary
(Elasticity = 1)
 Perfectly Inelastic ( Elasticity = 0)
 Perfectly Elastic (Elasticity = ∞)

10. Factors Affecting Price Elasticity of Demand
 Relative Need for the Product
 Availability of Substitute Goods
 Impact of Income
 Time under Consideration
 Perishability of the Product
 Addiction

11. Income Elasticity of Demand
 In Income elasticity of demand, the responsiveness of demand to
change in income.
 In P.Ed., we observed that there is an inverse relationship between
Price and Quantity Demanded.
 In I.Ed., there will be a direct relationship between Income and
Quantity Demanded.

12. With income elasticity of demand one measures the responsiveness of demand
to a change in consumer’s real income.

13.  Percentage change in quantity demanded =
 Percentage change in income =
 Thus, the formula for calculating the price elasticity of demand is as follows:

14. Calculating Income elasticity
Example: Suppose the monthly income of an individual increases from 5,000 to
15,000. Now, his demand for clothes increases from 35 units to 70 units.
Calculate the income elasticity of demand.
Solution: Given that:
Y = 5,000 Y1= 15,000
∆Y = 15,000-5,000 = 10,000
Q = 35 units
Q1 = 70 units
∆Q = 70 – 35 = 35
Income Elasticity of Demand Formula
Substituting the values,

15. Types of Income Elasticity

16. Positive Income Elasticity
Positive Income Elasticity – A
good that has positive income
elasticity is known as normal
good. With rise in income, an
individual buys in more
quantities of such goods.

17. Negative income elasticity
Negative Income Elasticity – A
good that has negative
income elasticity is known as
Inferior good. With rise in
income, an individual buys in
less of such goods.

18. Zero income elasticity
Zero Income Elasticity –
There is no change in the
demand for that
commodity with a change
in income.

19. Cross Price Elasticity of Demand
 Cross price elasticity of demand (CPED) measures the responsiveness
of demand for good X following a change in the price of a related
good Y.
 CPED’ tells us two goods (A and B) are substitutes, complements or
not related.

20. Cross Price Elasticity of Demand Formulae
Ex = The cross price elasticity of demand
Δ = 'change in'
Qd = Quantity demanded
P = Price

21. Price Elasticity of Supply
The price elasticity of supply is a measure of the responsiveness of the
quantity of a good supplied to the price of that good.

22. Calculations
The market price for rice rises from Rs.50 per kg. to Rs.55 per
kg. A shopkeeper wants to increase his supply of rice at this
higher price from 40 kgs to 50 kgs per day. Calculate the price
elasticity of supply?

23. The price of a pencil rises from Rs.2 to Rs.2.10.The price elasticity of supply
for pencil is 1.6.A shopkeeper wants to change his supply of pencils in
response to this price change. He currently supplies 300 pencils a day. What
will he supply following the price change?

24. How is the knowledge of elasticity useful to a
business manager?